Cambridge Assessment International Education

Cambridge International General Certificate of Secondary Education

ECONOMICS 0455/21
Paper 2 Structured Questions May/June 2019
MARK SCHEME
Maximum Mark: 90

Published

This mark scheme is published as an aid to teachers and candidates, to indicate the requirements of the
examination. It shows the basis on which Examiners were instructed to award marks. It does not indicate the
details of the discussions that took place at an Examiners’ meeting before marking began, which would have
considered the acceptability of alternative answers.

Mark schemes should be read in conjunction with the question paper and the Principal Examiner Report for
Teachers.

Cambridge International will not enter into discussions about these mark schemes.

Cambridge International is publishing the mark schemes for the May/June 2019 series for most
Cambridge IGCSE™, Cambridge International A and AS Level and Cambridge Pre-U components, and
some Cambridge O Level components.

This document consists of 18 printed pages.

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Question Answer Marks Guidance

1(a) Identify, using information from the extract, two reasons why a person 2 Difference between fourth and fifth bullet point
may have a low income. is where a country is not able to fund state
benefits, so people remain on low income.
• old
• sick
• unemployed
• being on state benefits
• being in need of, but not receiving state benefits in their country

1(b) Explain, using information from the extract, whether Russia has a 2
progressive, proportional or regressive income tax system.

Proportional (1) AND the same rate / people with different incomes paying
the same % / all paying 13% (1).

1(c) Calculate, using Table 1, what percentage of annual average income in 2

Costa Rica, a person would have if he receives UBI of $337.5 a month.

25% (2).
Correct working: $337.5 × 12 / $16 200 (1).

1(d) Analyse, using Table 1, the relationship between annual GDP per head 5 Countries must be named.
and life expectancy.

Generally, the higher the annual GDP per head, the longer the life
expectancy (1) e.g. rich people are likely to have better nutrition / healthcare
(1).

The two countries, Monaco and Finland, with the highest annual GDP per
head have the longest life expectancy (1). The country with the lowest
annual GDP per head, Mali, has the lowest life expectancy (1).

Russia or Costa Rica is an exception (1) e.g. Costa Rica has a lower
annual GDP per head but a higher life expectancy than Russia (1).

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Question Answer Marks Guidance

1(e) Explain an example of opportunity cost in the extract. 4

• Opportunity cost is the best alternative (1) foregone (1)

plus
• The opportunity cost of UBI (1) is the existing system of state benefits
(1)
or
• The opportunity cost of spending on unemployment benefits (1) is
spending on education / healthcare (1)

1(f) Discuss whether or not a monopoly will charge high prices. 5 Reward but do not expect reference to price
discrimination resulting in low prices for some
Up to 3 marks for why it might: consumers.
A monopoly is a single seller (1) has high market power (1) is a price maker
(1) demand for its product may be inelastic (1) due to lack of substitutes (1)
can raise revenue by raising price (1) may be seeking to maximise profit (1).

A monopoly may be inefficient (1) due to lack of competition (1) resulting in

higher costs and prices (1).

Up to 3 marks for why it might not:

A monopoly may have low average cost of production (1) due to economies
of scale (1) example (1).

A monopoly may not be a profit maximiser (1) example of another objective

(1).

A monopoly may have a product with elastic demand (1) e.g. may be
producing a luxury (1).

A monopoly may be concerned that charging high prices will encourage

new firms to enter the market (1) reducing its market power (1).

A monopoly may fear government intervention (1) and keep prices low (1).

A monopoly may be government controlled (1) and charge low prices (1).

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Question Answer Marks Guidance

1(g) Explain, using information from the extract, two reasons why 4 Opposite arguments are also correct e.g.
someone from India with the same income as someone from Finland higher tax rates in Finland, etc.
may enjoy a higher living standard.

Lower prices in India (1) an Indian household may have greater purchasing
power / be able to buy more goods and services (1)

Colder weather in Finland (1) which is likely to increase people’s willingness

to spend / greater need to spend to keep warm (1)

Lower tax rates in India (1) greater purchasing power / higher disposable
incomes (1)

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Question Answer Marks Guidance

1(h) Discuss whether or not a government paying higher state benefits to 6 Apply this example to all questions with
the unemployed will reduce unemployment. the command word DISCUSS

Up to 4 marks for why it might: (1(f), 1(h), 2(d), 3(d), 4(d), 5(d), 6(d) and 7(d))
The unemployed will have a higher income (1) they may spend more (1)
total (aggregate) demand may increase (1) firms may expand (1) take on Each point may be credited only once, on
more workers (1). either side of an argument, but separate
development as to how/why the outcome may
Enables the unemployed to spend on education and training (1) and differ is to be rewarded.
improve their chances of getting a job (1).
Generic Example Marks
Up to 4 marks for why it might not:
Unemployment benefit may become higher than the wages the low paid Tax revenue may decrease 1
may receive (1) this may encourage some people to stop working (1) (one mark)
increase voluntary unemployment (1).
...because of reason e.g. 1
Higher state benefits may be financed by increased taxation (1) total incomes may be lower
(aggregate) demand may not rise (1). (one mark)
Government spending money on education and training (1) may have Tax revenue may increase 0
greater impact on reducing unemployment (1). because incomes may be higher
i.e. reverse of 1st argument
(no marks)

because of a different reason 1

that is not the reverse of a
previous argument e.g.
government spending on
subsidies may stimulate the
economy more than spending on
education

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Question Answer Marks Guidance

2(a) Define a floating foreign exchange rate. 2

The price of a currency (1) determined by market forces (1).

2(b) Explain two benefits a government may gain from the growth of the 4
private sector.

Higher tax revenue (1) private sector may be more efficient / private sector
may earn higher profits / higher tax revenue may be spent on e.g. education
(1).

Lower government spending on supporting state-owned enterprises (1)

spending could rise on other areas e.g. healthcare (1).

Increases employment / reduces unemployment (1) which is a government

objective / reduces government payments on unemployment benefits (1).

2(c) Analyse why a country with low costs of production may experience a 6 The analysis must be dynamic / about change.
decrease in its exports.

The foreign exchange rate may increase (1) leading to higher export prices
(1).

The quality of the products produced may fall (1) reducing demand (1).

Incomes abroad may have fallen (1) reducing foreigners’ ability to buy
exports (1).

There may be a rise in competition (1) with foreign firms having even lower
costs (1).

Producers may charge higher prices (1) leading to a fall in demand (1).

Foreign countries may implement protection measures (1) e.g. tariffs (1).

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Question Answer Marks Guidance

2(d) Discuss whether or not a government should prevent a fall in its 8

country’s foreign exchange rate.

Up to 5 marks for why it should:

A fall in the exchange rate would increase the price of imports (1) this will
increase the price of imported raw materials (1) this will increase costs of
production (1) inflation may occur (1).

A rise in the price of finished products (1) will reduce the goods and
services people can buy (1) reduce living standards (1).

A fall in the exchange rate may reduce confidence in the country (1) this
may reduce investment (1).

A lower exchange rate may increase debt repayments (1) making it more
difficult for firms and the government to pay back loans (1).

Higher government spending on e.g. state benefits (1) will increase

disposable income (1) some of this might be spent on imports (1).

Up to 5 marks for why it should not:

A lower exchange rate will reduce the price of exports (1) more exports may
be sold (1) this combined with lower imports may improve the current
account balance (1).

Demand for domestic products may rise (1) this may increase output (1) so
cause economic growth (1) reduce unemployment (1).

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Question Answer Marks Guidance

3(a) When is a market in equilibrium? 2 2 marks could be awarded for an accurately

drawn demand and supply diagram showing
When demand equals supply / when there is no pressure for price to equilibrium.
change (2). When it is in balance (1).

3(b) Explain how a rise in the price of food would affect a country’s 4
consumer prices index (CPI).

CPI is a measure of inflation (1) Demand for food is inelastic / necessity

(1).

A rise in price of food would cause an increase in inflation / CPI (1). Food is
an item in the CPI (1) it has a relatively high weighting (1) people spend a
relatively high proportion on food (1) proportion declines as income rises
(1).

3(c) Analyse, using a demand and supply diagram, how bad weather is 6 S2
likely to affect the market for broccoli. S1
price of
broccoli
Up to 4 marks for the diagram:
Axes correctly labelled – price and quantity or P and Q (1).
P2
Demand and supply curves correctly labelled (1).
P1
Supply curve shifted to the left (1).
Equilibriums – shown by lines or e.g. E1 and E2 (1).

Up to 2 marks for written comments:

Bad weather will destroy crops / reduce supply of broccoli / quantity traded D
falls (1). O Q2 Q1
Weather is an important influence on the supply of agricultural products / quantity of
cost of producing broccoli will rise / price will rise (1). broccoli

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Question Answer Marks Guidance

3(d) Discuss whether or not a higher inflation rate will benefit producers. 8

Up to 5 marks for why it might:

Producers may receive higher prices / revenue for their products (1) if costs
rise by less (1) profits will rise (1) may encourage investment (1) expand
the business (1).

Producers may be able to borrow more cheaply (1) the burden of past debts
will fall (1) if the rate of inflation is above the rate of interest (1).

An inflation rate may rise from a low or negative rate (1) and this would
provide a greater incentive for producers (1).

Higher inflation rate in other countries (1) will make this country’s products
more competitive (1).

If demand is inelastic (1) a rise in price will increase revenue (1).

Higher inflation will reduce the cost of borrowing (1).

Up to 5 marks it might not:

If cost of production rises (1) output may fall (1) firms’ profits may fall (1).

Producers may have to spend time adjusting prices (1) menu costs (1).

A lower and stable rate of inflation (1) may increase the confidence of
producers (1).

Producers may find it more difficult to export abroad / exports may fall (1)
lower revenue (1).

Producers may find it harder to assess relative prices (1) and so may make
inefficient decisions (1).

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Question Answer Marks Guidance

4(a) Define a loss. 2

Costs exceed revenue (2).

Insufficient revenue / costs too high (1).

4(b) Explain, giving examples, the difference between an internal economy 4

of scale and an external economy of scale.

Internal economy is the benefit a firm gains from itself (1) e.g. buying
economies (1).

External economy is the benefit a firm gains from the industry (1) e.g.
ancillary industries (1).

4(c) Analyse how a government could increase the supply of enterprise. 6

The government could spend more on education and training (1) this will
increase people’s skills (1) may increase their ability to start up or run a
business (1).

The government could cut the rate of the tax on profits (1) provide grants /
loans / subsidies (1) this would increase the incentive to be an entrepreneur
(1).

The government could sell off assets to the private sector / privatise (1)
increasing the opportunity to be an entrepreneur (1).

Relax immigration laws (1) immigrants may set up new businesses (1).

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Question Answer Marks Guidance

4(d) Discuss whether or not consumers would benefit from a firm changing 8
from being a public limited company to a public corporation (state-
owned enterprise).

Up to 5 marks for why they might:

A public corporation’s main goal may be social costs and benefits (1) may
be subsidised by the government (1) it may charge a low price (1) making it
more affordable (1).

A public corporation may be less likely to go out of business (1) ensuring

continuity of supplies (1).

A public corporation may take a longer-term view (1) investing in new

technology (1).

A public corporation may follow health and safety rules / regulations (1)
increasing the safety of products (1).

Up to 5 marks for why they might not:

A lack of profit motive (1) may increase inefficiency (1).

A public corporation is likely to be a monopoly (1) the lack of competition (1)

may result in higher prices (1) lower quality (1).

A public corporation may lack funds to invest (1) during periods of recession
(1).

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Question Answer Marks Guidance

5(a) Identify two functions of money. 2

• Medium of exchange
• Store of value
• Unit of account (measure of value)
• Standard of deferred payments

5(b) Explain two reasons why a central bank may want to reduce 4 Allow explanation of why a high level of
borrowing. borrowing is bad for the economy, e.g.
implication that the central bank intervenes to
It may want to reduce the inflation rate (1) caused by too much demand correct this.
arising from borrowing (1).

To reduce disposable income (1) and reduce (demand-pull) inflation (1).

it may want to reduce a current account deficit (1) people may be spending
too much on imports (1).

Over lending by commercial banks (1) puts banking system at risk (1).

5(c) Analyse why skilled workers are usually paid more than unskilled 6 2 marks could be awarded for an accurately
workers. drawn demand and supply diagram showing
higher demand and lower supply.
The demand for skilled workers is likely to be higher (1) due to their higher
productivity / education (1) expectation of a higher rate of return / sales (1)
better quality goods and services (1) resulting in greater profits (1).

The supply of skilled workers is likely to be lower / more inelastic (1) due to
the shortage of people with skills / qualifications (1).

Skilled workers may have more bargaining power (1) harder to replace /
may cause more disruption by taking industrial action (1).

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Question Answer Marks Guidance

5(d) Discuss whether or not a rise in the rate of interest will reduce 8
economic growth.

Up to 5 marks for why it might:

It may discourage spending (1) as it would be more expensive to borrow (1)
more rewarding to save (1) this will lower total (aggregate) demand (1)
which could reduce firms’ output (1).

It may discourage investment (1) as more expensive to borrow (1) firms

decide to save the money (1).

Higher interest rate may cause exchange rate to rise (1) discouraging
exports / encouraging imports (1).

Up to 5 marks for why it might not:

People / firms may still be prepared to borrow if they are optimistic about
the future (1) thinking they will be able to repay (1) because they expect e.g.
higher income in the future (1).

The rate of interest may still be low (1) and may be below the inflation rate
(1).

A higher rate of interest may reduce inflation (1) this could make domestic
products more price-competitive (1) and so increase exports (1).

Government spending (1) increased exports (1) may offset reductions in

consumption and investment resulting in higher economic growth (1).

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Question Answer Marks Guidance

6(a) Define a multinational company. 2

A firm that produces / operates (1) in more than one country (1).

A firm that has its headquarters in one country (1) but also produces /
operates in other countries (1).

6(b) Explain two disadvantages a worker could experience from 4

specialising.

Monotony / boredom / lower efficiency (1) doing the same task over and
over again (1).

Workers may not develop a range of skills (1) this may limit their earning
potential (1).

Workers may become dependent on other workers (1) this may reduce their
earning potential (1).

There may be a greater risk of unemployment (1) which could lead to lower
income / living standards / due to lack of wider skills (1).

6(c) Analyse how a change in the PED for its products may benefit a firm. 6 No marks for a definition of PED.

A more elastic demand (1) would mean that the firm could raise revenue (1) Allow one mark for explanation of elastic
by lowering price (1) profit would rise (1) if revenue rises by more than costs demand and one mark for explanation of
(1). inelastic demand.

A more inelastic demand (1) would mean the firm could raise revenue (1) by Analysis of change in elasticity of demand is
raising price (1) profit would rise (1) if a lower output increases the gap required.
between revenue and cost (1).

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Question Answer Marks Guidance

6(d) Discuss whether or not the government should subsidise the 8 Reward but do not expect reference to books
production of books. being a merit good / a positive externality.

Up to 5 marks for why it should:

A subsidy would increase the supply of books / reduce costs of production
(1) lower their price (1) and cause demand to rise (1).

More books being purchased may raise education standards / literacy (1)
increase productivity (1) raise output / result in economic growth (1).

A subsidy may reduce the price of school textbooks (1) reducing the cost of
education (1).

Some publishers may be making a loss (1) and may be in danger of going
out of business (1) this would cause unemployment (1).

Up to 5 marks for why it should not:

Some book publishers may be making high profits (1) and so do not need a
subsidy (1).

The subsidy may encourage the book publishers to become inefficient (1)
not cutting their costs (1) and improving the quality of the books they
produce (1).

There will be an opportunity cost involved (1) e.g. spending on education

(1).

Waste of resources (1) e.g. growth of internet / e-books (1)

There may be an external cost (1) e.g. trees (1).

Certain books should not be subsidised (1) example (1).

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Question Answer Marks Guidance

7(a) Identify two fiscal policy measures. 2 Allow two different types of taxes or two
different areas of government spending, or a
• Government spending combination.
• Taxation

7(b) Explain two reasons why the unemployment rate may be higher in one 4
country than another.

Total demand may be lower (1) higher cyclical unemployment /

recession (1).

Lower labour mobility (1) causing structural unemployment (1).

Greater pace of technological advancement (1) replacing labour / causing

structural unemployment (1).

Greater voluntary unemployment (1) due to higher benefits (1).

Labour force growing faster than economy (1) creating shortage of jobs (1).

Lower education standards (1) means workers are less employable (1).

Labour market restrictions (1) may make employing workers more

expensive (1).

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Question Answer Marks Guidance

7(c) Analyse how supply-side policy measures may reduce unemployment. 6 These must be measures introduced by a
government.
Supply-side policy measures increase productive capacity within the
economy (1).

Education and training (1) could raise the skills of workers (1) labour
productivity could rise (1) firms may be encouraged to take on more
workers (1).

A cut in income tax (1) may increase total (aggregate) demand (1) causing
firms to produce more (1) and so take on more workers (1) it may also have
an incentive effect (1).

A cut in unemployment benefit (1) may encourage more of the unemployed

to take jobs (1) if wages are now higher than benefits (1).

Privatisation (1) could result in an expansion of firms (1) if they are more
competitive (1) and so they may take on more workers (1).

Subsidies (1) will lower costs of production (1) encouraging firms to expand
(1) employ more workers (1).

Trade Union reforms (1) may encourage firms to employ more workers (1)
e.g. cheaper / more flexible labour force (1).

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Question Answer Marks Guidance

7(d) Discuss whether or not a government should protect its country’s 8 Do not accept descriptions of the types of
industries from foreign competition. protection measures.

Up to 5 marks for why it should:

The industries might be infant industries (1) not able to take full advantage
of scale (1) and so not able to compete on price (1).

The industries may be declining industries (1) if they go out of business

quickly, unemployment may increase (1).

The industries may be facing dumping (1) which will make it difficult for
firms to compete against foreign producers selling at below cost price (1).

The government may want to reduce a current account deficit (1) caused by
imports exceeding exports (1) encourage economic growth (1) create more
jobs (1).

Up to 5 marks for why it should not:

It may push up the price of imported products if tariffs are used (1) costs of
production may rise (1) causing inflation (1) consumers’ purchasing power
would fall (1).

It may reduce competition for domestic firms (1) this may reduce efficiency
(1) raise prices (1) reduce quality (1).

Other countries may retaliate (1) reduce exports (1).

Opportunity cost (1) e.g. resources could be used to support education /

healthcare / infrastructure (1).

Free trade may result in lower prices (1) greater variety for consumers (1).

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